Roxio Beats Fourth Quarter Estimates And Plans For Substantial Growth From Napster In Fiscal 2005

"Napster and Dixons Group Sign Multi-Year Agreement to Support Napster's Planned Summer Launch in the UK"

Santa Clara, California - (May 5, 2004) - Roxio®, a division of Sonic Solutions® (NASDAQ: SNIC), the leader in digital media software, today reported financial results for its fiscal fourth quarter and year ended March 31, 2004 . Separately, Napster today announced that it has signed a multi-year marketing partnership with Dixons Group plc, the largest electronics retailer in the United Kingdom . Under terms of the agreement, Napster will be promoted as the only on-line music service available at the Dixons Group, which encompasses 1,100 Dixons, PC World, The Link and Currys storefronts.

Roxio's net revenues for the fourth quarter of fiscal 2004 were $33.6 million, compared to $33.8 million in the fourth quarter of the prior fiscal year. Roxio's reported net loss for the fourth quarter was $6.6 million, or $0.20 per basic and diluted share, as compared to net income of $2.3 million, or $0.12 per basic and diluted share, in the fourth quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share were approximately 32.7 million for the fourth fiscal quarter ended March 31, 2004. Shares used for computing basic and fully diluted earnings per share were approximately 19.5 million and 19.8 million, respectively, for the fourth quarter of the prior fiscal year.

Net revenue for the fiscal year ended March 31, 2004 was $99.3 million, as compared to net revenue of $120.4 million for fiscal 2003. Roxio's net loss for fiscal 2004 was $44.4 million, or $1.62 per basic and diluted share, compared to a net loss of $9.9 million, or $0.51 per basic and diluted share, in fiscal 2003.

For the fourth quarter, Roxio's digital media software division recorded revenues of $27.5 million and pretax income of $4.8 million, including restructuring charges of $2.9 million. Revenues for the company's online music division totaled $6.1 million, and pretax loss was $9.8 million. Combined pretax loss for the two divisions was approximately $5.0 million.

"Roxio posted a strong finish to fiscal 2004, with fourth quarter results that surpassed our expectations for both our software and Napster divisions, as well as better than anticipated expense management and a cash and short-term investments position of $67.1 million at the end of March," said Chris Gorog , Roxio's Chairman and CEO. "We have returned the software division to profitability and are very pleased with the strong debut of Roxio Easy Media Creator 7, which has earned multiple Editor's Choice awards and continues as the frontrunner in the digital media suite category. Napster continues to lead the Windows-only music download market and we are very pleased to be moving forward with Napster's international expansion with world-class partners like Dixons Group. Napster's improving results are expected to help propel Roxio to significant year-over-year revenue growth in fiscal 2005."

Business Outlook

For the first quarter of fiscal 2005, Roxio expects total revenues of approximately $28 million, with roughly $21 million from the software division and $7 million from Napster. Net loss per share for the quarter is expected to be approximately $0.26.

For the fiscal year, the software division is expected to generate revenues in the range of $75 million to $80 million and continued positive operating margins, reflecting continued growth in retail revenues offset by the anticipated decrease in OEM revenues. Expenses related to Napster are expected to decrease as a percentage of sales over the next several quarters, and Napster is expected to deliver double-digit sequential revenue growth throughout fiscal 2005, resulting in a revenue contribution of $30 million to $40 million.

Roxio Software Division Highlights

  • Launched Easy Media Creator 7, Roxio's next generation, full-featured photo, video, music, burning, and authoring applications which combines the improved burning suite of Easy CD & DVD Creator with Roxio's best-of-breed PhotoSuite 7 Platinum, VideoWave 7 Professional, and online music service Napster.
  • Received Editor's Choice awards for Roxio Easy Media Creator 7 from PC Magazine, CNET and EMedia Magazine.
  • Announced the availability of Toast with Jam 6, which combines its best-of-breed CD and DVD burning software for the Macintosh, Toast 6 Titanium, with a rich array of studio-quality audio software that enables musicians and music lovers alike to create superior sounding CDs and DVDs.
  • Introduced VideoWave 7 Professional and PhotoSuite 7 Platinum, the latest versions of Roxio's digital video editing and photo editing software.

Napster Division Highlights

  • Introduced Napster's Super Peer™ application, an active cache-management system that employs IBM 's services and open standards-based technology to help universities, ISPs and businesses conserve bandwidth and enable their customers to safely and rapidly download music authorized for digital distribution.
  • Hired Brand Central LLC as its exclusive U.S. licensing agency to help extend Napster, the world's most recognized brand in online music, into a full-scale lifestyle brand.
  • Appointed Michelle Santosuosso as VP of artist and label relations. Santosuosso brings a wealth of radio and record company experience to Napster and will be responsible for managing and developing Napster's label and artist relationships, overseeing NapsterLive, the service's exclusive in-house recording sessions, and creating new opportunities for artists with Napster.

Earnings Call Information

The Roxio fourth quarter teleconference and webcast is scheduled to begin at 1:30 p.m. , Pacific Time, on Wednesday, May 5, 2004 . To participate on the live call, analysts and investors should dial 800-374-1636 at least ten minutes prior to the call and reference conference ID: 6442030. Roxio will also offer a live and archived webcast of the conference call, accessible from the "Investor Relations" section of the company's Web site at http://investor.roxio.com .

                                  ROXIO INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share data)

                                                  March 31,         March 31,
                                                    2004              2003
                          ASSETS
    Current assets:
      Cash and cash equivalents                    $36,911           $36,820
      Restricted cash                                1,735                --
      Short-term investments                        28,490            16,677
      Accounts receivable, net of allowance for
       doubtful accounts of $991 at March 31, 2004
       and $850 at March 31, 2003                   16,279            18,196
      Inventories                                    1,187               460
      Prepaid expenses and other current assets      6,293             3,366
      Deferred income taxes                            150             4,709
        Total current assets                        91,045            80,228

    Long-term investment                             3,000             3,059
    Property and equipment, net                      9,933             9,058
    Goodwill, net                                   91,723            55,247
    Other intangibles assets, net                    5,899            10,314
    Other assets                                     1,748               589

        Total assets                              $203,348          $158,495

           LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                              $6,610           $11,952
      Income taxes payable                           2,841             1,353
      Accrued liabilities                           30,102            20,987
      Deferred revenues                              1,545               725
      Current portion of long-term debt             15,420               606
        Total current liabilities                   56,518            35,623

    Long-term liabilities:
      Long-term debt                                    68             5,490
      Deferred income taxes                             --             1,190
      Other liabilities                              2,381                --

        Total liabilities                           58,967            42,303

    Stockholders' equity:
      Preferred stock, $0.001 par value; Authorized:
       10,000 shares; Issued and outstanding: none
       at March 31, 2003 and 2002                       --                --
      Common stock, $0.001 par value; Authorized:
       100,000 shares; Issued and outstanding:
       33,543 shares at March 31, 2004 and 19,574
       shares at March 31, 2003                         34                20
      Additional paid-in capital                   195,503           127,804
      Deferred stock-based compensation             (1,386)           (2,886)
      Accumulated deficit                          (55,088)          (10,675)
      Accumulated other comprehensive income         5,318             1,929
        Total stockholders' equity                 144,381           116,192

        Total liabilities and stockholders'
         equity                                   $203,348          $158,495


                                  ROXIO INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)

                                           Three Months           Year
                                          Ended March 31,    Ended March 31,
                                          2004     2003      2004      2003
    Net revenues:
      Consumer software                  $27,498  $33,756   $87,332  $120,408
      Online music                         6,061       --    11,964        --
        Total net revenues                33,559   33,756    99,296   120,408

    Cost of revenues :
      Consumer software (1)                6,010    8,490    23,495    31,357
      Online music (2)                     5,163       --    10,422        --
      Amortization of purchased
       technologies                          604      651     2,399     2,791
        Total cost of revenues            11,777    9,141    36,316    34,148

    Gross profit                          21,782   24,615    62,980    86,260

    Operating expenses:
      Research and development (3)         7,158    5,872    31,142    21,582
      Sales and marketing (4)              8,450    9,198    42,625    41,255
      General and administrative (5)       5,929    5,761    23,994    26,804
      Restructuring charges                3,950      147    10,417       578
      Amortization of intangible assets      868      986     2,803     3,610
      Stock-based compensation charges       523      489     2,073     1,936
        Total operating expenses          26,878   22,453   113,054    95,765

    Income (loss) from operations         (5,096)   2,162   (50,074)   (9,505)
    Gain on sale of GoBack product line       30       --    10,622        --
    Other income (loss), net (6)              26      (94)      (15)      471

    Income (loss) before provision for
     income taxes                         (5,040)   2,068   (39,467)   (9,034)
    Provision (benefit) for income taxes   1,525     (256)    4,946       910

    Net income (loss)                    $(6,565)  $2,324  $(44,413)  $(9,944)

    Earnings per share:
      Basic                               $(0.20)   $0.12    $(1.62)   $(0.51)
      Diluted                             $(0.20)   $0.12    $(1.62)   $(0.51)

    Weighted average shares used in
     computing basic and diluted net
     income (loss) per share
      Basic                               32,691   19,498    27,496    19,477
      Diluted                             32,691   19,783    27,496    19,477

    (1)  Excludes stock-based compensation charges of $9 and $10 for the three
         months ended March 31, 2004 and 2003, respectively, and $38 and $49
         for the fiscal year ended March 31, 2004 and 2003, respectively.
         Excludes restructuring charges of $128 and $0 for the three months
         ended March 31, 2004 and 2003, respectively, and $1,089 and $53 for
         the fiscal year ended March 31, 2004 and 2003, respectively.

    (2)  Excludes restructuring charges of $0 and $33 for the three months
         ended March 31, 2004 and 2003, respectively, and $2 and $0 for the
         fiscal year ended March 31, 2004 and 2003, respectively.

    (3)  Excludes stock-based compensation charges of $136 and $142 for the
         three months ended March 31, 2004 and 2003, respectively, and $561
         and $715 for the fiscal year ended March 31, 2004 and 2003,
         respectively.
         Excludes restructuring charges of $1,352 and $14 for the three months
         ended March 31, 2004 and 2003, respectively, and $1,949 and $42 for
         the fiscal year ended March 31, 2004 and 2003, respectively.

    (4)  Excludes stock-based compensation charges of $121 and $127 for the
         three months ended March 31, 2004 and 2003, respectively, and $503
         and $113 for the fiscal year ended March 31, 2004 and 2003,
         respectively.
         Excludes restructuring charges of $97 and $84 for the three months
         ended March 31, 2004 and 2003, respectively, and $1,006 and $297 for
         the fiscal year ended March 31, 2004 and 2003, respectively.

    (5)  Excludes stock-based compensation charges of $257 and $210 for the
         three months ended March 31, 2004 and 2003, respectively, and $971
         and $1,059 for the fiscal year ended March 31, 2004 and 2003,
         respectively.
         Excludes restructuring charges of $2,373 and $16 for the three months
         ended March 31, 2004 and 2003, respectively, and $4,674 and $186 for
         the fiscal year ended March 31, 2004 and 2003, respectively.

    (6)  Excludes restructuring charges of $0 and $0 for the three months
         ended March 31, 2004 and 2003 respectively, and $1,697 and $0 for the
         fiscal year ended March 31, 2004 and 2003, respectively.


                                 ROXIO, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

                                                           Years Ended
                                                            March 31,
                                                      2004              2003
    Cash flows from operating activities:
      Net loss                                     $(44,413)          $(9,944)
      Adjustments to reconcile net loss to net cash
       (used in) provided by operating activities:
        Depreciation and amortization                10,619             9,742
        Stock-based compensation charges              2,073             2,641
        Re-measurement of warrants issued to
         strategic partner                               --              (705)
        Provision for (recovery of) doubtful accounts  (438)              649
        Restructuring charges related to impairment
         of fixed assets                              2,416                --
        Loss on retirement of assets                    326                --
        Gain on sale of assets                      (10,622)               --
        Deferred income taxes                         3,559            (1,548)
      Change in operating assets and liabilities:
        Accounts receivable                           2,422            10,391
        Inventories                                    (793)             (147)
        Prepaid expenses and other assets             1,798              (184)
        Accounts payable                             (5,152)            1,959
        Income taxes payable                          1,483             4,256
        Accrued liabilities                           2,746            (7,491)
        Deferred revenues                               820                --
        Other liabilities                             2,381                --
          Net cash provided by (used in) operating
           activities                               (30,775)            9,619

    Cash flows from investing activities:
      Purchases of property and equipment            (4,793)           (4,187)
      Proceeds from sale of assets                    9,980                --
      Purchases of other intangible
       assets                                           (63)           (5,726)
      Purchases of short-term investments           (31,928)          (27,578)
      Proceeds from sale of short-term
       investments                                   11,515            11,075
      Maturities of short-term
       investments                                    8,600             4,526
      Transfer to restricted cash
       accounts                                      (1,735)               --
      Investment in non-consolidated
       companies                                         --            (3,000)
      Acquisition of Pressplay, net of
       cash acquired                                (14,552)               --
          Net cash used in investing
           activities                               (22,976)          (24,890)

    Cash flows from financing activities:
      Principal payment of capital lease
       obligation                                      (613)             (557)
      Payments of short-term debt                    (5,000)                -
      Proceeds from line of credit                   15,000             5,000
      Issuance of common stock under
       employee stock plan                            2,493             1,368
      Issuance of common stock from
       private equity financing                      41,424                --
      Repurchase and retirement of common
       stock                                             --            (1,065)
          Net cash provided by financing
           activities                                53,304             4,746

    Effect of exchange rates on cash                    538                65

    Change in cash and cash equivalents                  91           (10,460)
    Cash and cash equivalents at
     beginning of period                             36,820            47,280
    Cash and cash equivalents at end of
     period                                         $36,911           $36,820

    Supplemental cash flow information:
      Cash paid for interest                           $490              $220
      Cash paid for income taxes                     $1,313            $1,832

About Roxio

Roxio, a division of Sonic Solutions, develops and markets the best-selling digital media software in the world. Roxio offers award-winning software products for CD/DVD burning, photo editing and video editing and has an installed base of over 150 million users. Roxio distributes its products globally through strategic partnerships with major hardware manufacturers, through leading retailers, through Internet partnerships and through direct sales at www.roxio.com. Roxio's parent company, Sonic Solutions (NASDAQ: SNIC; http://www.sonic.com) is the leader in digital media software and provides a broad range of software tools and applications for creative professionals, business and home users and technology partners. Sonic's products range from professional DVD authoring systems and interactive content delivery technologies that are used to produce the majority of Hollywood movies released on DVD, to the award-winning Roxio- and Sonic-branded CD and DVD creation, playback and backup applications that have become the premiere solutions for consumers and business users worldwide. Sonic's AuthorScript® is the de facto standard for CD and DVD burning and formatting and has been licensed by major software and hardware manufacturers, including Adobe, Broadcom, Microsoft, Scientific-Atlanta, Sony, and many others. Sonic Solutions is headquartered in Marin County, California.

Sonic, the Sonic logo, Sonic Solutions, Roxio, MyDVD, CineMagic, Plug & Burn, LiveShare, Roxio Easy Media Creator, and AuthorScript are trademarks or registered trademarks of Sonic Solutions or its subsidiaries in the United States and/or other countries. Dolby is a trademark of Dolby Laboratories. All other company or product names are trademarks of their respective owners and, in some cases, are used by Sonic Solutions under license. Specifications, pricing and delivery schedules are subject to change without notice.